I offer a full refund (minus fees) and nobody's taken me up on it in six months. Then again, my sales are mostly in the collectibles area and I can see your concern with clothing.
Still and all, I think people just feel more comfortable with that refund option. I know I would if I was buying any clothing other than a t-shirt.
Also, people are afraid they'll get the item and it won't be as it was described. They don't know that you're a trustworthy seller until they've actually bought from you and everything went well...